For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Cambridge Bancorp (NASDAQ:CATC). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.
How Fast Is Cambridge Bancorp Growing?
As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Cambridge Bancorp managed to grow EPS by 13% per year, over three years. That's a good rate of growth, if it can be sustained.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of Cambridge Bancorp's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Cambridge Bancorp maintained stable EBIT margins over the last year, all while growing revenue 32% to US$155m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Cambridge Bancorp?
Are Cambridge Bancorp Insiders Aligned With All Shareholders?
Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
While Cambridge Bancorp insiders did net -US$267k selling stock over the last year, they invested US$678k, a much higher figure. On balance, to me, this signals their optimism. It is also worth noting that it was Independent Director Leon Palandjian who made the biggest single purchase, worth US$158k, paying US$52.82 per share.
Along with the insider buying, another encouraging sign for Cambridge Bancorp is that insiders, as a group, have a considerable shareholding. To be specific, they have US$18m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 3.0% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
Should You Add Cambridge Bancorp To Your Watchlist?
One important encouraging feature of Cambridge Bancorp is that it is growing profits. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. However, before you get too excited we've discovered 1 warning sign for Cambridge Bancorp that you should be aware of.
As a growth investor I do like to see insider buying. But Cambridge Bancorp isn't the only one. You can see a a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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